Bankruptcy Alternatives

Do nothing
This may seem obvious, but it is often overlooked, and is often the best option. Sometimes debts that seem large really aren't in the grand scheme of things, and can be dealt with relatively easily. Sometimes the potential downsides of bankruptcy or other options outweigh the potential advantages. Sometimes circumstances are such that the best course of action is to wait and reevaluate your options at some future date. This firm is about helping people solve debt problems, not selling them services that they don't need. If patience is your best option, we'll let you know.
Negotiated settlements
Sometimes, a creditor can be persuaded to accept less than the full amount owed, either in a lump sum or as part of an installment plan. This is especially true if the settlement is negotiated by a bankruptcy lawyer, as they know that failure to reach a deal could result in a bankruptcy filing, which will likely leave them with nothing. This can be a good option if most of your debts are owed to a single creditor and you are able to satisfy the terms of the agreement in a relatively short period of time. It is a less attractive option if you have numerous creditors or you need a long repayment period; in these cases the negotiations can easily turn into a house of cards that falls apart of one negotiation fails. Another downside is that debts forgiven by the creditor count as income and may be subject to Federal Income Tax. This may have particularly bad consequences, as settling a debt that could otherwise be discharged in bankruptcy could result in replacing it with a debt you cannot, if can't afford the additional tax burden. And the less the debt is settled for, the more the resulting taxes will be.Additionally, cancellation of debt will result in a derogatory mark on your credit report. Any negotiated settlement must take all of these factors into account.
Debt management plans
These plans, offered by nonprofit credit counseling agencies, roll all of you credit card debt into a monthly payment at a lower interest rate, which can often be less than half of what it previously. The balance of the debt is then paid off over a 3–5 year period. This can result in a dramatic reduction of the monthly payment. Accordingly, these plans are best for debtors who are in a bit of trouble but would be able to afford payments if the interest rate were lower. Unfortunately, most debtors don't realize there is a problem until they are having trouble making minimum payments, making these plans unaffordable. There are several other downsides as well; these plans cannot be used for medical debt, you are unable to get new credit while enrolled in the plan, and missed payments can result in termination of the plan and a return to the higher interest rates.
For-profit debt relief
These are the programs you see advertised on television that promise to lower your monthly payment and avoid bankruptcy. They work in a similar fashion to the negotiated settlements described above; however, unlike a private settlement negotiated by a lawyer—and every other item on this list—there is virtually nothing to recommend them. These plans require you to stop making your regularly monthly payments and instead make payments into a bank account set up by the company offering the program. After the account reaches a designated amount, the company tries to negotiate with your creditors to settle your debts for a lump sum. If they can reach a settlement you agree to, the company uses the money in your account to pay the creditors, and takes a percentage of the amount forgiven as a fee. For most debtors, these programs combine all of the downsides of negotiated settlements with most of the downsides of bankruptcy. Most debt relief plans take 24–48 months before the account has enough money for the company to begin negotiating. During this time there is no protection from creditors, so you will be subject to collection calls and possible legal action. If you had decent credit going into the plan, it will be destroyed coming out of it, especially considering that the settlement itself will be a negative mark. You will still be subject to tax on any cancelled debt, and the fees charged tend to be higher than those charged by a lawyer. Finally, at the end of all of this, there is no guarantee of settlement! If the company is unable to reach an agreement, they will simply refund your money and you will be back where you were before, plus years worth of late fees and accumulated interest.
Debt consolidation loans
These are loans taken out with a bank that are used to pay off high interest credit cards, medical bills, or other expenses. Personal loans can be a good option for those whose debts are relatively small and are looking for lower interest rates and the simplicity of dealing with one bill. The obvious downside is that those in serious trouble often don't qualify for them. Additionally, debtors take out home equity loans for this purpose. While this may seem like a smart decision at first glance, as the interest rates are lower and repayment terms more generous, they convert unsecured debt to secured debt. If you continue to have financial trouble and can no longer afford the payments, bankruptcy may provide limited benefit.
Special considerations for student loans
Federal student loan debt is not dischargeable in bankruptcy. However, the Federal government offers a number of programs to help those who are having trouble making payments. These programs are too complicated to describe here, but if student loans are responsible for a significant portion of your debt problems, this firm will discuss them with you and explain them in greater detail.

Bankruptcy Alternatives

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